Government Squeeze Shutters For-Profit Colleges Years Late

Oct 4 2016

Some 35,000 students at 137 campuses had nowhere to go this semester when the Obama administration said federal loans could not be used to pay for classes at the big ITT chain of for-profit colleges. But the students will someday look back to realize that they've been spared paying back a loan spent on a worthless education.

ITT is dependent on those student loans or other government programs for 80% of its funding. Loss of that revenue source forced the company immediately to close its doors nationwide (with a single exception in Massachusetts). ITT denounced the Education Department’s decision, resorting to calling it “unconstitutional”  a misfire because no law requires the government to qualify all schools no matter their performance record. The government relies on accrediting agencies that appraise that performance and ITT’s independent accreditor had concluded in April that the colleges would be unlikely to meet standards.

That was only one reason for the administration's chokehold. ITT's deceptive marketing practices, its steering students into taking out ill-afforded loans to pay to the colleges, its poor educational quality  all have been under scrutiny by federal regulators and state prosecutors for years. In 2004, federal agents closed schools for a time in eight states while they searched company offices for evidence of fraud related to "student recruitment, enrollment, dropout rates, grade inflation, loans, and reported job placements and salaries", says this New York Timesreport. The 50-year-old school is currently under investigation by more than a dozen state attorneys general and two federal agencies.

And yet The Wall Street Journal, always the friend of business, fraud no obstacle, said in an editorial that, "The government has never had to prove its claims in court. When angry voters refer to a 'lawless' government, this is what they mean". "Lawless" does fit if instead taken to mean there is no law requiring the government to go to court to prove why it does not owe loan privileges to whatever shady educational pretender comes along. It's an eligibility threshold set by policy that says to enroll students paying with federal loans a school must meet standards. The Journal copies the company's press release that the school was shut down "without proving a single allegation" in spite of the history of complaints just cited, in spite of ITT having to pay a $725,000 settlement to California as far back as 2005 when whistle-blowers reported that the company was inflating grades so that students could qualify for state money.

bonanza

With the 1990s came the belief that schools, privately run by professionals as profit-seeking businesses, could do a more efficient job educating the nation's youth. Capital poured in. From 2000 to 2003, the sector led the stock exchanges, climbing 460% while the Standard & Poor's 500-stock index declined by 24%, according to one source.

There's no reason why for-profit colleges should not be able to provide good educations. Donald Graham, former publisher of The Washington Post, wrote an impassioned
op-ed in the Journal defending the school the Post company owns, the 41,000 student Kaplan University. But funding by investors rather than donors creates a strong bias toward emphasizing profits more and college less. Wall Street's demands for growth and higher profits brought pressure on the field to cut the costs of educating  lower instructor pay, larger classes, etc.  and to enroll ever greater numbers of students, with slackened concern for whether they were prepared for college or would ever earn enough to repay their loans. Like all colleges, the for-profits raised tuition year after year. Why not suck in ever more money from a government that paid whatever was the going rate?

While the for-profits account for only 12% of students, they account for nearly half of all loan defaults. Only 32% of students stay to graduate from the four-year programs, earning degrees viewed as inferior by employers. The other two-thirds drop out with nothing to show for their mistake but debt. At peak before some housecleaning began, of 21 institutions that were running default rates so high that they could lose the right to accept federally issued students loans, 20 of them were from the private, for-profit ranks.

honoring the troops

Veterans have been a prime target for the for-profits. There's a 90% limit on the amount of total revenue that can come from federal loans to students. One would think that absurdly high cap is enough, but the colleges went for still more government funds through the loophole that places no limit on money coming from the G.I. Bill. In May, an alliance of some of the largest veteran and military groups asked the administration to crack down on colleges that prey on veterans. A 2014 report they cited found that state or federal authorities were investigating seven of the eight for-profit colleges that received the most money from the Veterans Affairs Department for deceptive recruiting and other violations of federal law.

collateral damage

Paying the price for all of this are the students, and soon to follow, we taxpayers. The low percentage of students that actually completed courses at ITT is left paying off loans for a so-called education from a now infamous institution tainting their résumés. To obtain a loan discharge, that group would have to prove they had been defrauded.

Students stranded midway through ITT are the likely to see their loans wiped clean, but there is no guarantee, says The Washington Post. And, of course, "wiped clean" means money that will never come back to the government and will ultimately accrue to taxpayers.

Students hoping to transfer to other schools are most likely to find that their course credits at ITT will not be recognized, such is ITT's reputation. Nursing candidates especially seem to see their ITT credentials counting for nothing. And in the for-profit arena in general, law students find no bar association accreditation for the schools they have chosen without foresight. Even beauty schools produce graduates who cannot get jobs; their loan default rates are "staggering" as a consequence.

What is remarkable, however, is that there are still students enrolling at colleges such as ITT  that even with an Internet that knows everything, they have not done the minimal research that it would have taken to warn them off.

But at least it can be said that enough awareness of trouble has seeped into the culture to have caused the decline of for-profit schools. In July, ITT signaled investors that it expected this fall's new student enrollment to plunge by 45% to 60%, and that after losing half the student body since 2010. Another behemoth, University of Phoenix, saw its peak of 460,000 students dwindle to 213,000 for the 2015-2016 school year.

ITT is not the only large for-profit college system to fall after the shutoff of student loan eligibility. After a year of closing or selling the 120 schools that it operated, Corinthian Colleges filed for bankruptcy in May of last year after accusations that it had systematically misled both investors and students with false graduation and job placement rates. In March of this year California won a $1.2 billion judgment against the defunct company for its fraudulent advertising methods, an empty victory considering that the company flamed out with $143 million in debts against assets of $19 million. Corinthian, too, was defended by blistering editorials in the Journal.

And then there's the Education Management Corporation, under investigation or sued by attorneys general in a dozen states. The school system  110 schools that train for trades such as chefs  is accused of illegal incentive-based payment of its recruiters. In this case, even investors filed a class action law suit. The company agreed to settle with the Obama administration and attorneys general of 38 states with a refund $102 million of private student loan debt.

slow motion

The question is: Considering years of complaints against ITT, what took Obama's education department so long to crack down, leaving it as last minute business as its term comes to an end. The government has placidly relied on regional accreditors to decide which schools should be allowed to accept government loans to students. Why did those agencies invite attention only lately for rubber-stamping so many sham institutions when it was clear that default rates on students loans were soaring? As the Journalreported, "The six agencies that approve more than 1,500 four-year colleges have in the past 15 years revoked accreditation for, wait for it, 18".

How is it that the Education Department only now is putting in place "gainful employment" criteria for qualifying colleges to accept student loans in payment, which has led them to the discovery only now that about 1,400 programs serving 840,000 students will not pass the new standards, and that 99% of those problem programs are at for-profit institutions?

How is it that this publication was on the case four years ago, in 2012, with "For-Profit Colleges  A National Disgrace", when it was barely a subject in the media. It took two further years for the Obama administration to act against Corinthian and four to move against ITT.

Every year that ITT was allowed to continue meant another $500 million (our estimate) of government loans going to students for pass-on to ITT; loans that, given ITT's sorry record for job placement, students may not be able to repay, loans that this year will most likely be waived, loans that will be charged to the rest of us once the soon to be very wealthy Mr. Obama deposits his multi-million dollar book advances and sets off on a tour of the world's best golf courses.

Why did the gov. take over the funding of student loans from the banks. Those loans were from bank to student. The gov took them from the private sector because the gov thought the banks were charging too high % and fees. So the gov takes it over and in a few short years it crashes because the gov gave loans to anyone that was breathing whereas the banks were not as lenient. The private loans were a for profit loan company or bank. Private! must make profit. Any government endeavor cannot go broke. The gov just feeds it more of your money.

Excellent article. I’ve been saying the same thing for years. Better late than never, public guardians. Republicans complain about “burdensome regulations”. From my standpoint it looks more like pretend regulation in too many cases.

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